Earnings

Financially Devastating or Fantastic? – PACCAR Inc (PCAR), ProPetro Holding Corp. (PUMP)

The shares of PACCAR Inc have decreased by more than -2.19% this year alone. The shares recently went up by 2.43% or $1.65 and now trades at $69.52. The shares of ProPetro Holding Corp. (NYSE:PUMP), has slumped by -11.36% year to date as of 04/16/2018. The shares currently trade at $17.87 and have been able to report a change of 12.89% over the past one week.

The stock of PACCAR Inc and ProPetro Holding Corp. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of PCAR is 9.00% while that of PUMP is 3.70%. These figures suggest that PCAR ventures generate a higher ROI than that of PUMP.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, PCAR’s free cash flow per share is a positive 1.56, while that of PUMP is negative -0.01.

Liquidity and Financial Risk



The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for PCAR is 4.60 and that of PUMP is 1.00. This implies that it is easier for PCAR to cover its immediate obligations over the next 12 months than PUMP. The debt ratio of PCAR is 1.10 compared to 0.18 for PUMP. PCAR can be able to settle its long-term debts and thus is a lower financial risk than PUMP.

Valuation

PCAR currently trades at a forward P/E of 12.45, a P/B of 3.04, and a P/S of 1.26 while PUMP trades at a forward P/E of 7.68, a P/B of 3.59, and a P/S of 1.51. This means that looking at the earnings, book values and sales basis, PCAR is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of PCAR is currently at a -9.21% to its one-year price target of 76.57. Looking at its rival pricing, PUMP is at a -17.42% relative to its price target of 21.64.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), PCAR is given a 2.70 while 1.90 placed for PUMP. This means that analysts are more bullish on the outlook for PCAR stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for PCAR is 3.43 while that of PUMP is just 6.58. This means that analysts are more bullish on the forecast for PCAR stock.

Conclusion

The stock of ProPetro Holding Corp. defeats that of PACCAR Inc when the two are compared, with PUMP taking 5 out of the total factors that were been considered. PUMP happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, PUMP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PUMP is better on when it is viewed on short interest.

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